New Bern financials continue to improve

Published: Sunday, December 1, 2013 at 05:22 PM.

New Bern received a clean financial audit for 2013 along with praise for the city’s finance department from the accounting firm that did the audit.

An auditor with the McGladrey firm said the finance department “did a fantastic job” and there were no adjustments or disagreements with management. The city received an unqualified opinion from McGladrey.

Mayor Lee Bettis told a group of webelos scouts attending last week’s Board of Aldermen meeting the unqualified opinion means the city “gets two thumbs up.”

But the city still faces challenges, according to a report presented by Keith Fiaschetti, New Bern finance director.

Fiaschetti said the current Board of Aldermen brought the city’s general fund reserves out of a very unfavorable position. In 2010 those funds were at 7.84 percent of the general fund. The Local Government Commission recommends not less than 8 percent of general funds be held in reserve to mitigate risks and provide a back-up for revenue shortfalls, he said.

The current board, management and finance department were able to replenish reserve funds to 25.8 percent. That is still below the state average of 38.5 percent and surrounding “benchmark” cities that have an average of 41.5 percent in reserves. But New Bern’s reserve levels are much healthier and were able to improve liquidity of funds through the recent recessionary period, Fiaschetti said

The city is dependent on sales taxes and took in $5.4 million in those revenues in the 2013 fiscal year, which is a 1.7 percent increase over the prior year and reflected caution in consumer confidence, Fiaschetti said. Sales tax revenue needs to be monitored on a monthly basis, he said.

New Bern received a clean financial audit for 2013 along with praise for the city’s finance department from the accounting firm that did the audit.

An auditor with the McGladrey firm said the finance department “did a fantastic job” and there were no adjustments or disagreements with management. The city received an unqualified opinion from McGladrey.

Mayor Lee Bettis told a group of webelos scouts attending last week’s Board of Aldermen meeting the unqualified opinion means the city “gets two thumbs up.”

But the city still faces challenges, according to a report presented by Keith Fiaschetti, New Bern finance director.

Fiaschetti said the current Board of Aldermen brought the city’s general fund reserves out of a very unfavorable position. In 2010 those funds were at 7.84 percent of the general fund. The Local Government Commission recommends not less than 8 percent of general funds be held in reserve to mitigate risks and provide a back-up for revenue shortfalls, he said.

The current board, management and finance department were able to replenish reserve funds to 25.8 percent. That is still below the state average of 38.5 percent and surrounding “benchmark” cities that have an average of 41.5 percent in reserves. But New Bern’s reserve levels are much healthier and were able to improve liquidity of funds through the recent recessionary period, Fiaschetti said

The city is dependent on sales taxes and took in $5.4 million in those revenues in the 2013 fiscal year, which is a 1.7 percent increase over the prior year and reflected caution in consumer confidence, Fiaschetti said. Sales tax revenue needs to be monitored on a monthly basis, he said.

Long-term debt on city projects is dropping. About 8 percent of the city’s expenditures go to annual debts. The average benchmark cities spend 5 percent of expenses on debt, Fiaschetti said.

One way the city was able to lower debt expenditures was by paying cash for $864,000 worth of vehicles and equipment instead of financing it, he said.

The city’s budget was too reliant on interfund reimbursement with other entities for shared service costs that decreased the general fund by $2.7 million, which is 9 cents on the property tax rate, Fiaschetti said.

When there is a short-term need for money in one fund, an interfund reimbursement is sometimes used to transfer money from a fund that has a surplus.

Part of the shortfall was made up with revenue transfers from the water and sewer funds that represented 1.5 percent gross capital assets of those funds, Fiaschetti said.

However, the general fund and utility funds should be self-sustaining, he said.

A bill was introduced in the General Assembly this year that would eliminate all transfers from water and sewer funds to general funds. That bill was revised into a study for 2014 that would allow those reimbursements, Fiaschetti said.

“But the message is, we can’t rely on supports,” he said. “It is not good business practice.”

Postemployment benefits also needs to be looked at Fiaschetti said.

Those benefits cost the city $1.4 million this year, or 4.5 percent of the property tax rate.

“We need to address this growing liability and the resulting potential long-term impact on budgets and credit worthiness,” Fiaschetti said.

Alderman Dana Outlaw said since the money doesn’t have to be paid off immediately, some cities are planning to pay off the shortfalls with new housing starts as the economy improves.

“It is a challenge for all cities, not just us,” Fiaschetti said.

One option the city might look at is reducing benefits or changing eligibility requirements, he said.

An update on the electric fund showed it was doing better by having 67 days of cash on hand compared to 25 days of available cash in 2010, Fiaschetti said.

The city was able to do that, in part, by using interfund reimbursements to lower charges by $1.7 million from the general fund for shared services (human resources, accounting and internet technology) between the different departments, he said.

State mandated changes proposed for 2015, will also affect transfers from the electric fund to the general fund, Fiaschetti said.

Another challenge could come from electric agencies that would affect electric customers in the future.

The N.C. Eastern Municipal Power Agency is predicating an increase in power supply costs for member cities of 3 percent per year from January 2015 to January 2020, Fiaschetti said.

“Because of the size of the increase — although it would have to be up to the board — but it would have to be passed on to the customers,” he said.

The city’s water fund has less cash on hand, 269 days’ worth, than in 2010 when there when there were 272 days of cash on hand. But the fund still exceeds target levels, according to Fiaschetti’s report. Capital reserve funds have nearly doubled from $453,186 in 2010 to $816,059 currently, the report shows.

The water fund is in good financial condition, and $3.1 million cash was used from it to pay for the Neuse Boulevard water main replacement project. The department also lower shared services costs by $474,000 that would have come from the general fund by using the interfund reimbursement plan, Fiaschetti said.

Although the water fund is self-supporting, the debt level is still high for the water department, $32.9 million, which is above average, and it would not be prudent to lower water rates, Fiaschetti said.

The city’s sewer fund has a debt of $3.5 million, which is 31 percent of expenses from the budget and is above average compared to benchmark cities. Cash and investment levels are also too low, Fiaschetti said.

Because of the debt, the department is “barely meeting short-term obligations,” the report shows.

It takes 98 cents from every dollar to cover those debt liabilities and surplus cash for day-to-day operations needs to be doubled to compensate for that, Fiaschetti said.

Possible solutions for the sewer fund include discontinuing transfers to the general fund, review operating cost structures and raising sewer rates, the reports shows.

The sewer department was able to lower charges from the general fund by $538,000 by sharing services with other departments, he said.

The new stormwater utility fund started July 1, 2012 saw revenues of $713,000 and $635,000 of that was spent. The surplus went into the fund’s reserves, the report shows.

Fiaschetti said health care costs will also continue to be a major challenge for the city for years to come.

Alderman Sabrina Bengel said after the presentation the city’s stronger financial outlook was one of the highlights she has seen in the past four years.

“There are a lot of challenges in finance and you did an unbelievable job,” Bengel told Fiaschetti.

Eddie Fitzgerald can be reached at 252-635-5675 or at eddie.fitzgerald@newbernsj.com. Follow him on Twitter @staffwriter3.